Data from Callahan’s First Look shows a 2% increase in term borrowings
for the first quarter 2004 over year-end 2003. While that number in and of itself
is not terribly compelling, when coupled with other data points it could provide
some insight into how credit unions are strategically positioning their balance
sheets. For example, with a pick up of cash on hand why would term borrowings
be increasing? Are credit unions getting ahead of the curve, both figuratively
and literally, when it comes to funding their business?
For the first quarter 04, shares are still outpacing loans on an absolute basis.
Total shares increased 3.2% vs. a pickup in loans of 1.5%. Lets compare this
with what happened last year, share growth of 5.6% vs. loans still at 1.5%.
Credit unions could be looking at this differential and projecting a trend,
and proactively stepping up their borrowings in the event it continues.
There is clearly an ALM benefit to having term borrowings on the books in a
rising interest rate environment. The funding is a hedge, locking in a spread
against fixed rate loans and investments and allowing other non-fixed assets
to reprice. Credit unions following this strategy will be looking to their corporates
and the FHLB to help implement the plan.